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Malaysia’s Performance in
2016 Index of Economic Freedom
By Heritage Foundation and Wall Street Journal
1
HIGHLIGHTS OF MALAYSIA’S PERFORMANCE
1.
Malaysia registered an overall economic freedom score of 71.5 in the 2015 Index
(2015: 70.8), making Malaysia the 31st out of 186 (2015: 37th out of 186) freest
countries. Malaysia’s improved score of 71.5 is above the world average of 60.7
placing Malaysia in the “Mostly Free” (countries with scores of 70-79.9) group of
countries such as Sweden, Austria, South Korea and Norway. The overall
ranking for 186 countries is shown in Appendix 1.
2.
In 2016, improvements in ranks were achieved in six of the 10 economic
freedoms such as business freedom, monetary freedom, fiscal freedom,
investment freedom, financial freedom and freedom from corruption. Property
rights remained same, while government spending, labor freedom and trade
freedom took a marginal decline. (Table 1).
3.
The 2016 Economic Freedom Index released by the Heritage Foundation on 1st
February 2016, acknowledges that Malaysia scores well in the area of open
markets measured by trade freedom, investment freedom, and financial freedom.
The financial sector is robust, and foreign investment is being permitted to a
greater degree. While the rule of law remains weak, the government has taken
steps to tackle corruption more effectively.
Table 1: Malaysia’s Economic Freedom Performance 2016 and 2015 Comparison
Category
10 Components
Overall
Changes
in Rank
+2
Property Rights
RULE OF LAW
Freedom from Corruption
GOVERNMENT
SIZE
Fiscal Freedom
Government Spending
Business Freedom
REGULATORY
EFFICIENCY
Labor Freedom
Monetary Freedom
Trade Freedom
OPEN
MARKETS
Investment Freedom
Financial Freedom
+1
+5
-4
+1
-5
+28
-2
+13
+1
2016
2015
Rank Score Rank Score
29
71.5
31
70.8
50
55.0
50
55.0
51
52.0
52
50
50
85.0
55
84.4
75
74.3
71
74.0
5
91.4
6
93.5
45
71.5
40
75.7
17
84.5
45
80.8
72
81.4
70
80.0
83
60.0
96
55.0
38
60.0
39
60.0
2
Table 2: The 10 Economic Freedoms
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4.
Malaysia has undertaken structural reforms to enhance the entrepreneurial
environment. Management of public finance has been relatively prudent, with
gradual reductions in various government subsidies in recent years, and the
corporate income tax rate will be reduced from 25 percent to 24 percent in 2016.
5.
The government maintains investments in such key sectors as banking, media,
automobiles, and airlines. Malaysia is a leading exporter of electronics and
information technology products; other industries include agricultural products
and automobiles
MALAYSIA AMONG THE ASIA-PACIFIC COUNTRIES
6.
Economic freedom has advanced in the Asia–Pacific region for three years in a
row. Since 2013, the region as a whole has recorded a cumulative score gain of
close to 1.6 points. The Asia–Pacific area continues to have by far the largest
number of the world’s “free” economies. Hong Kong, Singapore, New Zealand,
and Australia lead the Index. Nonetheless, the region is marked by sharp disparities in levels of economic freedom. Over 60 percent of the 42 countries in the
Asia–Pacific region score between 40 and 60 on the economic freedom scale,
remaining either “mostly unfree” or “repressed.”
7.
With a score of 71.5, Malaysia is ranked 8th out of 42 countries in the Asia–
Pacific region, overtaking Macau (Table 3). Since 2012, Malaysia’s economic
freedom has advanced by 5.1 points, the third largest point increase in the Asia–
Pacific region. Among ASEAN countries, Malaysia remained 2nd out of 10
countries (Table 4).
Table 3: 2016 Index of Economic Freedom for Asia-Pacific Countries
Country
2016
Rank
Hong Kong
Singapore
New Zealand
Australia
Taiwan
Japan
Korea, South
Malaysia
Macau
Brunei Darussalam
Thailand
Kazakhstan
Samoa
Philippines
1
2
3
4
5
6
7
8
9
10
11
12
13
14
2015
Score
88.6
87.8
81.6
80.3
74.7
73.1
71.7
71.5
70.1
67.3
63.9
63.6
63.5
63.1
Rank
1
2
3
4
5
6
7
8
9
10
12
11
14
13
Score
89.6
89.4
82.1
81.4
75.1
73.3
71.5
70.8
70.3
68.9
62.4
63.3
61.9
62.2
4
Vanuatu
Azerbaijan
Sri Lanka
Tonga
Kyrgyz Republic
Bhutan
Indonesia
Mongolia
Fiji
Cambodia
India
Pakistan
Vietnam
Maldives
Bangladesh
Papua New Guinea
China
Micronesia
Tajikistan
Nepal
Laos
Burma
Solomon Islands
Kiribati
Uzbekistan
Timor-Leste
Turkmenistan
Korea, North
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
60.8
60.2
59.9
59.6
59.6
59.5
59.4
59.4
58.8
57.9
56.2
55.9
54.0
53.9
53.3
53.2
52.0
51.8
51.3
50.9
49.8
48.7
47.0
46.2
46.0
45.8
41.9
2.3
16
17
21
18
15
24
22
19
20
23
26
25
32
28
27
29
30
35
31
34
33
38
36
39
37
40
41
42
61.1
61
58.6
59.3
61.3
57.4
58.1
59.2
59
57.5
54.6
55.6
51.7
53.4
53.9
53.1
52.7
49.6
52.7
51.3
51.4
46.9
47
46.4
47
45.5
41.4
1.3
Table 4: 2016 Index of Economic Freedom for ASEAN Countries
2015
Country
Singapore
Malaysia
Brunei
Thailand
The Philippines
Indonesia
Cambodia
Vietnam
Laos
Burma
2014
Rank
Score
Rank
Score
1
2
3
4
5
6
7
8
9
10
87.8
71.5
67.3
63.9
63.1
59.4
57.9
54.0
49.8
48.7
1
2
3
4
5
6
7
8
9
10
89.4
70.8
68.9
62.4
62.2
58.1
57.5
51.7
51.4
46.9
5
CONCLUSION
On a worldwide basis, this year’s increase in economic freedom has been driven by
improvements in half of the 10 economic freedoms. Investment freedom improved by
one point on average, while ratings for the control of public spending and freedom from
corruption were higher by an average of 0.8 point and 0.7 point, respectively. Both
monetary freedom and trade freedom also recorded slight improvements. There is a
robust relationship between improving economic freedom and achieving higher per
capita economic growth. As economies gain economic freedom and thus achieve
dynamic growth, individuals and companies are empowered to build businesses, create
jobs, and generate greater innovation for their communities and societies.
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Appendix 1
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Appendix 2
METHODOLOGY AND HIGHLIGHTS FROM THE 2016 INDEX
1.
The Index of Economic Freedom is constructed through analysis of 10 specific
components of economic freedom, some of which are themselves composites of
additional quantifiable measures. Each of the 10 economic freedoms is graded
using a scale from 0 to 100. The 10 component scores are equally weighted and
averaged to get an overall economic freedom score for each economy.
2.
The 10 components of economic freedom are:
i) Property Rights;
ii)
Freedom from Corruption;
iii)
Fiscal Freedom;
iv)
Government spending;
v)
Business Freedom;
vi)
Labor Freedom;
vii)
Monetary Freedom;
viii)
Trade Freedom;
ix)
Investment Freedom; and
x)
Financial Freedom.
3.
This report is based on quantitative and qualitative data sourced from secondary
reports published by international bodies.
4.
The Index of Economic Freedom is constructed through analysis of 10
components of economic freedom, which are grouped for ease of reference into
four categories or pillars:




Rule of law (property rights, freedom from corruption)
Government size (fiscal freedom, government spending)
Regulatory efficiency (business freedom, labor freedom, monetary
freedom); and
Open markets (trade freedom, investment freedom, financial freedom)
5.
The report indicates the range of economic freedom scores as below:

80-100 : Free

70-79.9: Mostly Free

60-69.9: Moderately Free

50-59.9: Mostly Unfree

0-49.9 : Repressed
6.
The global average economic freedom score of 60.7 is the highest recorded in
the 22-year history of the Index.
7.
The Index of Economic Freedom has provided an economic policy road map for
countries that aspire to greater economic dynamism and prosperity.
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8.
The 2016 Index of Economic Freedom mentions Nations with higher degrees of
economic freedom prosper because they capitalize more fully on the ability of the
free-market system to generate and reinforce dynamic growth through efficient
resource allocation, value creation, and innovation.
9.
It is notable that nations that have focused on improving their competitiveness
and opening their societies to new ideas, products, and innovations have done a
much better job of achieving the high levels of social progress that their citizens
demand. And it is not the massive redistributions of wealth or government dictates on income levels that produce the most positive social outcomes.
10.
The erosion of economic freedom was most pronounced in labor freedom. The
average global labor freedom score fell by 1.6 point, reflecting still-stagnant
employment conditions around the world as well as the pressing necessity of
enhancing the flexibility of labor markets.
11.
Hong Kong has maintained its status as the world’s freest economy, a distinction
that it has achieved for 22 consecutive years. However, the gap between that
territory and Singapore, the second-freest economy, has almost vanished. Hong
Kong’s economic freedom score declined by a single point, with an erosion of the
rule of law reflecting an increased level of perceived corruption.
12.
The BRICS nations (Brazil, Russia, India, China, and South Africa) has stalled,
except in India, which improved by 1.6 points. Russia plunged 10 places in the
rankings to 153rd, with its score deteriorating by 1.5 points. The rankings of the
other BRICS countries—South Africa, Brazil, and China—declined to 80th,
122nd, and 144th, respectively.
13.
The United States continues to be mired in the ranks of the “mostly free,” the
second-tier economic freedom category into which the U.S. dropped in 2010.
Worse, with scores in labor freedom, business freedom, and fiscal freedom
notably declining, the economic freedom of the United States plunged 0.8 point
to 75.4, matching its lowest score ever.
14.
Within the top five freest economies, Switzerland is the only economy whose
overall score did not decline in the 2016 Index. Outperforming Australia, the
competitive Swiss economy has moved into fourth place, less than a point behind
New Zealand.
15.
United Kingdom replaced Mauritius as the 10th freest economy, the world’s top
10 freest economies in the 2016 Index consist of four Asia–Pacific economies
(Hong Kong, Singapore, New Zealand and Australia); four European economies
(Switzerland, Ireland, Estonia, and the United Kingdom); and one country each
from North America (Canada) and the South and Central America/Caribbean
region (Chile).
16.
Hong Kong accomplished the top position in the 2016 Index of Economic
Freedom with a score of 88.6, followed by Singapore (2nd, 87.8), New Zealand
(3rd, 81.6), Switzerland (4th, 81.0), Australia (5th, 80.3), Canada (6th, 78.0), Chile
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(7th, 77.7), Ireland (8th, 77.3), Estonia (9th, 77.2) and coming in at the 10th position
is United Kingdom with a score of 76.4.
17.
There is a robust relationship between improving economic freedom and
achieving higher per capita economic growth. Whether long-term (20 years),
medium-term (10 years), or short-term (five years), the relationship between
changes in economic freedom and changes in economic growth is consistently
positive. As economies gain economic freedom and thus achieve dynamic
growth, individuals and companies are empowered to build businesses, create
jobs, and generate greater innovation for their communities and societies.
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Appendix 3
The Index of Economic Freedom is constructed of 10 components of economic freedom, which are grouped into 4 categories:
Categories
1. Rule of Law
2. Government
Size
Components
The property rights component is an assessment of the ability of individuals to accumulate private property, secured by clear laws
that are fully enforced by the state. It measures the degree to which a country’s laws protect private property rights and the degree
to which its government enforces those laws. It also assesses the likelihood that private property will be expropriated and analyzes
the independence of the judiciary, the existence of corruption within the judiciary, and the ability of individuals and businesses to
enforce contracts. The more certain the legal protection of property, the higher a country’s score; similarly, the greater the chances
of government expropriation of property, the lower a country’s score. Countries that fall between two categories may receive an
intermediate score.
b) Freedom from
Corruption
Corruption erodes economic freedom by introducing insecurity and uncertainty into economic relationships.
a) Fiscal Freedom
Fiscal freedom is a measure of the tax burden imposed by government. It includes direct taxes, in terms of the top marginal tax
rates on individual and corporate incomes, and overall taxes, including all forms of direct and indirect taxation at all levels of
government, as a percentage of GDP.
This component considers the level of government expenditures as a percentage of GDP. Government expenditures, including
consumption and transfers, account for the entire score.
No attempt has been made to identify an optimal level of government expenditures. The ideal level will vary from country to
country, depending on factors ranging from culture to geography to level of development. However, volumes of research have
shown that excessive government spending that causes chronic budget deficits and the accumulation of sovereign debt is one of
the most serious drags on economic dynamism.
b) Government
Spending
3. Regulatory
Efficiency
4. Open Markets
Definition
a) Property Rights
a) Business
Freedom
b) Labor Freedom
c) Monetary
Freedom
a) Trade Freedom
b) Investment
Freedom
c) Financial
Freedom
Business freedom is an overall indicator of the efficiency of government regulation of business.
The labor freedom component is a quantitative measure that considers various aspects of the legal and regulatory framework of a
country’s labor market, including regulations concerning minimum wages, laws inhibiting layoffs, severance requirements, and
measurable regulatory restraints on hiring and hours worked.
Monetary freedom combines a measure of price stability with an assessment of price controls.
Trade freedom is a composite measure of the absence of tariff and non-tariff barriers that affect imports and exports of goods and
services.
In an economically free country, there would be no constraints on the flow of investment capital. Individuals and firms would be
allowed to move their resources into and out of specific activities, both internally and across the country’s borders, without
restriction.
Financial freedom is a measure of banking efficiency as well as a measure of independence from government control and
interference in the financial sector.
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